Auditing the prescription drug consumer price index in a changing marketplace

Andrew L. Hicks, Ernst R. Berndt and Richard G. Frank

Health Economics, 2024, vol. 33, issue 8, 1793-1810

Abstract: Changes in the dynamics of prescription drug markets have raised issues regarding whether the United States Bureau of Labor Statistics' (BLS’) Prescription Drug Consumer Price Index (CPI‐Rx) has adequately kept up with the evolving marketplace. The CPI‐Rx limits its sampling frame to retail outpatient outlets and excludes prescription pharmaceuticals dispensed in non‐retail settings such as hospitals, physician/clinic outpatient facilities, and nursing homes. Thus, the CPI‐Rx overlooks the increasingly important specialty pharmaceuticals dispensed in non‐retail settings, whose transactions are instead captured in the overall hospital and professional services component of the medical care CPI. Specialty drugs now account for about 55% of all U.S. drug spending, double the share of a decade earlier. To the extent specialty drug price growth differs from that of traditional pharmaceuticals, the CPI‐Rx could provide an inaccurate measure of overall drug price inflation. We calculate a chained Laspeyres CPI using data from the Merative™ MarketScan® Databases for the years 2010–2019 and IQVIA‐designated specialty drugs and offer evidence showing that by not sampling specialty drugs in non‐retail settings, the CPI‐Rx has understated overall U.S. prescription drug inflation by just under 75 basis points annually. We discuss implications for health care policy and suggest the BLS examine the feasibility of publishing an overall pharmaceutical price index incorporating both traditional and specialty pharmaceuticals dispensed in retail and non‐retail settings.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:wly:hlthec:v:33:y:2024:i:8:p:1793-1810

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